“All cash, seven-day close.” Those words are a dream for a home seller and a real estate agent, but while they may be thrown around on shows like Million Dollar Listing to entice a buyer to accept a $28 million offer on a $30 million list price, how realistic is it to close so quickly in the real world? Not very, it turns out. Yes, an all-cash offer can greatly speed up closing (and, even then, seven days is rare). But for the 75% or so of buyers who finance their home purchase, “47” is the magic number.
That’s the average time it takes to close on a home, according to mortgage software company Ellie Mae. However, every loan is different, and there are a number of factors that can affect the closing date. The trick to getting through closing as quickly, easily, and painlessly as possible is knowing what to expect, knowing where you can step in to facilitate or speed things up, and being prepared for any surprises that pop up along the way. Here are some common occurrences that can delay a closing.
The type of loan
The type of financing you’re using to purchase your home can help determine the amount of time it will take to close. For Federal Housing Authority (FHA) or conventional loans, the average time to close is 47 days; U.S. Department of Veterans Affairs (VA) loans generally take a bit longer. There may still be ways to hurry things along by being diligent and in constant contact with your lender, however, some parts of the closing process are baked into the loan type.
Down payment issues
Did you budget for both the down payment and the closing costs. Maybe you had enough for both but then had to deal with an emergency. There are a number of ways down payment issues can arise, and if you’re faced with need to gather additional funds, it could put your closing date in jeopardy.
Expect your finances and employment history to be scrutinized and all the details verified when buying a home. The process is can be even more intense if you’re self-employed or if your down payment is coming from unconventional means like gift funds. Getting to the closing table in a timely manner will require cooperation from employers, bankers, landlords, and anyone else who needs to verify information. Being at their mercy is no fun, but one thing you can do to keep your closing moving forward is respond quickly to any lender requests that come your way.
Irresponsible credit management
Getting your pre-approval from a lender is not an invitation to go buy a car or apply for a new credit card. Doing so could derail your loan. The ding to your credit score can cause your interest rate to rise; and incurring more debt may raise your debt-to-income ratio (DTI) beyond the acceptable threshold.
Quitting or losing your job
Sometimes an employment change is out of your control, but you definitely don’t want to willingly leave your job while you’re in escrow. Less than two years of steady employment could put your loan at risk, or at least cause a delay while your lender takes the time to figure out how your change in circumstances affects your approval and financing.
Interest rate changes
If you didn’t lock in your interest rate and it rises during escrow, your payment may go up. In most cases, a minimal uptick won’t make that much difference, but if you were already maxing out your budget or approval amount, this could become a problem. You may be able to work with your lender to adjust the rate or it may be necessary to come up with a little more money, which could add some time to your escrow period.
The home doesn’t appraise
A crucial part of the escrow process is the appraisal, which is usually required during any home purchase. The appraisal is used to determine the market value of the home; if it comes in lower than the sales price, there may be some more negotiating to do. If the seller is unwilling to lower the price, you may have to pay cash for the difference between the appraisal amount and the sales price—which could be dangerous if you overpay and end up under water on the home.
The title doesn’t come back clear
As part of the escrow process, a title company will complete a title search on the home to make sure there are no liens on the property and that no one else can claim ownership. Uncovering title issues can push the closing by weeks or even months.
Unless you’re planning to waive the home inspection—which is not recommended since it can leave you on the hook for expensive repairs to things you can’t see, like electrical and plumbing issues—your purchase offer will contain a contingency for an inspection. This contingency gives the buyer an “out” if the inspection uncovers serious defects; the buyer can also opt to negotiate with the seller, however, that back and forth can push the closing date.
Your purchase contract will typically have language that spells out other conditions that have to be met in order for the sale to go through; two of the main contingencies are for loan approval and appraisal. Additionally, if you’re selling one home in order to buy a new one, your new loan is likely contingent on the sale of the other property. The seller may have his or her own set of contingencies. If any of them become problematic, it could push the closing.
Your lender will typically order a pest inspection during the escrow process, and the evidence of termites or carpenter ant damage could put a wrinkle in your closing. Repairs may have to be made before the home can close, or, in a worst-case scenario, it could kill the deal altogether.
Homeowner’s insurance is required on any home that is being financed, but certain conditions can make it hard to get a policy. A major claim against the home like mold or water damage, or multiple claims filed by a previous owner, may cause insurance companies to flag the home as a risk. It can also be hard to get insurance, or at least take more time, if the home is located in a flood or disaster zone.
Inflated costs on the closing statement
Your lender is required by law to provide you with a loan estimate outlining the different costs related to your mortgage loan. The estimate is just that—an estimate—however it shouldn’t be too far off from the closing statement you’ll receive from the lender at least 24 hours before closing. Certain fees are allowed to change, but not by more than 10%. If you feel like you’re being overcharged, you can ask for a reduction, Or, you can change lenders—but this will definitely add time to your escrow period.
Homeowner’s association fees
Delinquent homeowner’s association (HOA) fees and/or fines may show up during a title search if the HOA has put a lien on the home you’re buying, but can also pop up at any time during escrow and put your closing on pause. If you can’t convince the seller to pay the fees, reduce the price of the home accordingly, or provide a closing credit, it may be up to you to pay them.
Death of the seller
Yes, it happens. And if it happens to the seller while you’re in escrow, you’re looking at probate court, which can take a few months—or even a few years.
Even if everything else has gone smoothly throughout the escrow process, there is one more potential hurdle: the walk-through. This is your opportunity to make sure the home looks good, that any requested repairs were made, and that there is no damage to the home that may have been obscured or that is new since the last time you toured it. Any issues uncovered during the walk-through could delay the closing.